If Lalu Prasad’s budget is being seen as an election stunt aimed at wooing voters, it is also a budget designed to draw companies, which use roads to carry their produce, towards the railways by cutting freight rates strategically.

The gamble, like last year, is on volumes. The old logic that if you cut prices, there will be more buyers, is expected to increase revenues.

“I have shown if you cut fares it increases revenues. The goddess of wealth always smiles on such moves,” Lalu Prasad said as he presented his budget.

Though lower prices mean reduced per-tonne profit, overall profits will remain more or less intact while increasing the market share of the railways in the freight business.

Gross traffic receipts are expected to go up to Rs 81,901 crore in 2008-09 from Rs 72,755 crore in 2007-08, but profits are expected to be almost the same at Rs 24,782 crore compared with Rs 25,065 crore in 2007-08.

And the beauty of it all is that the measures will help finance minister P. Chidambaram and Reserve Bank governor Y.V. Reddy combat inflation, and Lalu Prasad will be able to win kudos for it.

Analysts said the move to strengthen the railway infrastructure would pay dividends. It will reduce the cost of operations for the railways while reducing costs for user industries which were paying a higher price for transport congestion.

The construction of dedicated freight corridors, linking the northern states with the industrial regions of the east and west, is expected to start in 2008-09.

Rail connectivity with major ports will be improved to keep pace with the country’s growing exports and to make imports cheaper.

Annual wholesale price inflation in Asia’s third-largest economy ticked up to a six-month high of 4.35 per cent in early February because of higher food and commodity prices.

“The minister has tried to smoothen the link between the ports and the mainland. The budget will help in easing the movement of crucial commodities,” said Shubhada Rao, chief economist at Yes Bank in Mumbai.

In all, the railways will spend Rs 37,500 crore in 2008-09 on augmenting rolling stock, speeding up a separate freight track and launching an innovative merry-go-round system for industrial goods to maintain growth in freight traffic.

The money will be spent to expand the capacity of about 20,000 km of rail lines used to transport coal and iron ore.

The railways will also try to use public-private partnerships to build world-class stations, rolling stock and logistics parks.

“The thrust of the budget is to consolidate the position gained so far,” Railway Board chairman K.C. Jena said in his post-budget press conference.

The freight traffic has seen consistent growth in the past three years. With the bulk of the Rs 81,901-crore revenue projected to come from total freight earnings, the challenge for the railways is to sustain incremental growth.”

He said that over the past three years, the railways had maintained an incremental loading of 60 million tonnes and now had set a target of 850 million tonnes.

Total traffic earnings in 2008-09 will be 12.6 per cent higher than the revised estimates of the previous year, he said.

Courtesy: The Telegraph